Key Takeaways

  • Converting an LLC to an S Corporation involves both state-level and federal (IRS) procedures.
  • Costs to convert an LLC to an S Corp vary by state, ranging from $0 to $500+ depending on filing fees and legal assistance.
  • To be taxed as an S Corp, an LLC must meet strict IRS requirements including limits on shareholders and stock class.
  • The process may involve filing Form 8832 to elect corporate taxation and Form 2553 for S Corp status.
  • Some states allow for a streamlined “statutory conversion,” while others require forming a new corporation and dissolving the LLC.
  • Filing deadlines matter: Form 2553 must be submitted within 2 months and 15 days of the start of the intended tax year.
  • A qualified business attorney can help navigate compliance, avoid errors, and determine if S Corp status is advantageous.

Business owners should determine if an LLC or S corp is better for their business. For income tax purposes and management structure, choosing the right business structure will have an effect on them.

How to change LLC to S Corporation

In order for the entity to be changed from an LLC to a corporation, the business will need to file with the state agency who is in charge of corporate filings. They can help them convert to a corporation. When an LLC wants to be an S corporation instead, they will need to formally change their entity type with the formation state. At this time, they can also put in a request to change to an S corporation for tax purposes.

When converting an LLC to an S corporation, the first step is to figure out if the LLC qualifies for S corporation status. Not every corporation can be taxed as an S corporation. These are the requirements: 

  • none of the shareholders can be a corporation, non-resident alien, or partnership
  • must be a domestic corporation
  • has no more than 100 shareholders
  • has one class of stock

Cost to Convert an LLC to an S Corp

The cost to convert an LLC to an S Corp varies depending on your state’s business filing procedures and whether you seek professional assistance. Here's what you should factor in:

1. State Filing Fees:

  • Statutory Conversion: In states like California, Florida, Delaware, and Nevada, you may pay a filing fee for a Certificate of Conversion or similar form.
    • Example: California charges $150 for Articles of Incorporation and may charge additional fees for filing the conversion itself.
  • Reorganization States: States like New York and New Jersey do not allow statutory conversions, requiring the LLC to dissolve and re-register as a corporation—doubling the cost of formation and dissolution filings.
    • Estimated Range: $0–$500+ depending on the state.

2. IRS Forms (Free to File):

  • Form 8832 (Entity Classification Election)
  • Form 2553 (Election by a Small Business Corporation)
    While these forms are free to submit, errors can delay your S Corp status or trigger unwanted taxation. It’s wise to have a tax professional or legal expert assist.

3. Legal and Tax Advisory Fees:

  • If you consult with an attorney or accountant, costs can range from $200 to $2,000+ depending on complexity and geographic region.

4. Ongoing State Fees and Franchise Taxes:

  • Some states impose annual franchise taxes or minimum business taxes that apply once you're structured as a corporation, even if you're still legally an LLC electing S Corp tax status.

If you’re unsure where to begin or want to minimize risks, consider hiring a qualified business attorney. You can find vetted professionals on UpCounsel with experience in S Corp conversions.

What is an S Corporation?

S Corporations (S corp) can be referred to as small business corporations or S subchapter. An S corporation passes corporate credit, deductions, income, and losses to each shareholder for the purposes of federal taxes. When deciding to run a business as an S corporation, know that the IRS won't officially change its organization as an LLC.

The S corporation status protects small business owners from double taxation. The IRS has a restrictive amount of ownership to the S corporation compared to LLC. Shareholders must be U.S. citizens. All shareholders must agree to the S corporation tax status. There is also C corporation (C corp), which is simply a regular form of corporation. C corporations can become S corps with certain requirements. 

Benefits and Considerations of Electing S Corp Status

S Corporation status offers several advantages, but it’s not ideal for every business. Here are the main points to consider:

Benefits:

  • Tax Savings: Profits can be distributed as dividends, reducing self-employment tax liability.
  • Pass-Through Taxation: Income is passed to shareholders and reported on their individual tax returns—avoiding double taxation.
  • Credibility: Electing S Corp status may enhance your business's image with clients, investors, or lenders.
  • Salary + Distributions Strategy: Owners can pay themselves a “reasonable salary” and take the rest as distributions, which may be taxed at a lower rate.

Considerations:

  • Payroll Requirements: You must run payroll and comply with employment tax rules.
  • Administrative Complexity: Filing deadlines, shareholder rules, and IRS compliance make management more involved than a default LLC.
  • Strict Eligibility Criteria: Limited to 100 shareholders, who must be U.S. citizens or residents.

LLC vs S Corp

An LLC is created for federal tax purposes under state law. LLC members pay self-employment taxes. It can be treated as a corporation, partnership, or sole proprietorship. The LLC has more advantages because there is more flexibility compared to a corporation structure. S corporations are not the same as a business entity. It is an elected tax status. S corporation status is taxed based on profits. Leftovers profits are given as dividends to shareholders which have a lower tax rate than regular income. So it is personal to convert an LLC or S corporations.

Should You Convert Your LLC to an S Corp?

Whether an LLC should convert to an S Corp depends on several business factors:

You might benefit from S Corp status if:

  • Your business earns consistent profits above what would be considered a reasonable salary.
  • You are the sole owner or have a small number of U.S.-based members.
  • You want to reduce self-employment taxes legally.
  • You're already planning to hire employees and handle payroll systems.

S Corp election may not be the best fit if:

  • Your business is newly formed and not yet profitable.
  • You want to bring on international investors or complex ownership structures.
  • You don’t want to be locked into salary distributions and payroll administration.

Tax Returns

You want to make sure you meet all the tax filing requirements before you file. If the entity's tax status needs to be changed, but not its structure, fill out Form 8832 and file it with the IRS. If this form is not completely filled out, the LLC will be classified under the IRS' standard rules. If the LLC changes its tax status, for example, to be taxed as a corporation, it won't be able to change its tax status again for at least 60 months. In order to be taxed as an S corporation, the LLC must file Form 2553. An LLC is not a corporation, even if the IRS recognizes it as an S corporation for tax purposes.  

If the LLC's formation state allows for the formal conversion, it's a fairly easy process. It will cost either the same or a little more than it would cost to form a new entity. Usually, a member would on be required to file the corporation's Articles of Conversion. This document will act as the Articles of Incorporation for the new business entity.

If a simple conversion process is not allowed by the formation state, the company has several choices instead. They can do the following: 

  • send the IRS a letter informing them of the structural change
  • choose to be an S corporation by filling out Form 2553
  • cancel the LLC while filing with the state for a new corporation

Wyoming, Nevada, Florida, Delaware, and California allow such conversions, but Pennsylvania, Colorado, Arizona, New York, Alabama, Connecticut, and New Jersey don't. In order to meet the IRS' requirements, the LLC must be a domestic entity that has a single class of stock. They also need to have less than 100 shareholders.

Some regulated businesses, such as international sale corporations, financial institutions, and insurance companies, cannot choose to become an S corporation. Form 8832 will show them how to classify their company instead. If the LLC has already been classified to be taxed as a corporation, Form 8832 does not need to be refiled. However, if the LLC was taxed in the past as a sole proprietorship, Form 8832 needs to be filled out and box 6a must be marked to choose corporate taxation.

If the LLC is foreign, it can't be changed into an S corporation. Form 2553 can be used to choose to be an S corporation. In order for an LLC to use its new structure in the current tax year, this form needs to be filed within two months and 15 days from the start of the tax year. If this doesn't happen, the election will begin next tax year. 

The biggest effect of choosing federal tax treatment when the company is an S corporation is no longer having self-employment tax levied on partnerships. Corporations and LLCs restrict the personal liability their owners have. However, their management and ownership structure is different.

Important Deadlines and Filing Timelines

To ensure your LLC’s election to be taxed as an S Corp is effective in the desired tax year, timing is crucial:

  • Form 2553 Deadline: File within 2 months and 15 days from the beginning of the tax year you want S Corp status to apply. If your LLC's tax year starts January 1, the deadline is March 15.
  • Late Election Relief: You may still qualify for S Corp status in the current year if you have reasonable cause for filing late. The IRS provides relief under Revenue Procedure 2013-30.
  • Re-election Restrictions: If you change your tax status and later want to change again (e.g., from corporation back to partnership), the IRS may restrict changes for 60 months.

Failing to file correctly or on time can result in unintended tax treatment for the year, leading to surprises during tax season.

Frequently Asked Questions

How much does it cost to convert an LLC to an S Corp?Costs vary by state and can range from $0 to $500+ in filing fees. Professional help may add $200–$2,000 depending on the complexity.

Can any LLC become an S Corp?No. The LLC must meet IRS requirements including having 100 or fewer shareholders who are U.S. citizens or residents, and only one class of stock.

What forms are needed to elect S Corp status?Typically, you'll file IRS Form 2553. If your LLC hasn't already elected to be taxed as a corporation, you may also need to file Form 8832.

Does converting to an S Corp change my LLC into a corporation?Not necessarily. The LLC remains a legal LLC at the state level but is taxed as a corporation federally. However, in some states, a formal entity conversion may be necessary.

What’s the deadline to file for S Corp tax status?Form 2553 must be filed within 2 months and 15 days of the start of the tax year for the election to be effective that year. Otherwise, it applies the following year.

If you need help converting an LLC to an S corporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.